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The $54 million question: What was firm's role?

CHICAGO – There were audible groans from the crowd in downtown Chicago on Tuesday night. Not at the United Center, but at the Spertus Institute for Jewish Learning and Leadership.

That's where attorney Devon Bruce debated Kelly Richmond Pope, an associate professor in the school of accountancy and management information systems at DePaul University, about the role an auditing firm plays in catching fraud.

About five times, the crowd, largely made up of professional accountants, groaned as Bruce detailed former Dixon Comptroller Rita Crundwell's theft of nearly $54 million over 2 decades, and the actions of the accounting firms and bank. Bruce was the city's attorney in a lawsuit that won a $40 million settlement from its former auditors and bank.

The debate was sponsored by the Illinois Certified Public Accountant Association and the Illinois State Bar Association.

"This is really the story of one of the largest accounting firms in the United States blatantly, negligently misidentifying the theft of over $53 million over 20 years," Bruce said in opening remarks.

In her opening remarks, Pope said that finding fraud is a shared responsibility among many parties, and that a standard audit isn't designed to catch fraud.

"Instead of asking, 'Where were the auditors?'" Pope said, "maybe we should ask, 'What is the auditor really looking for, and is [an audit] designed for what the community thinks it is?'"

The debate's opening was given by Jason Wojdylo, chief inspector of the Marshals Asset Forfeiture Division. His agency handled the sale of Crundwell's assets, which resulted in the city recovering $9.2 million after expenses.

"Forfeiture is a pretty powerful sanction," he said, "and it is the the government's way of taking the fruits of crime away from those who think that it is a way of life. And so I think we can all agree, and certainly in my experience, that people who commit crimes generally know that there is an inherent risk. And the risk is that if they get caught, they go to prison.

"But they often fail to recognize, or appreciate, that we're going to take everything they have that we can show was bought with the proceeds of the crime [or] was used to facilitate the crime."

In addition to the nearly $53 million in restitution Crundwell must pay to the city, there was a "money judgment" given, Wojdylo said, of $53 million, meaning the federal government can go after Crundwell for up to $106 million.

"The reality is, if she were to ever hit the lottery, we can come collect up to $106 million from her," he said.

Dixon Finance Director Paula Meyer attended the debate as a spectator. She said she was interested in the debate and curious about the case each side would make.

After the debate, when attendees could ask questions, Meyer was asked to give an update on where the city stands in regard to its internal controls, and what it will do with the remaining settlement and restitution money.

The debate

Bruce detailed Crundwell's theft and showed examples of the fake invoices and the checks she used to steal the money. He compared them to real invoices and checks, all of which auditors, he said, saw or should have seen during annual audits.

The vast majority of the fake invoices, Bruce said, didn't have an Illinois Department of Transportation logo or contact information and contained a misspelling – "secton," instead of "section" – all of which should have reasonably led an auditor to call the state to comfirm the invoice.

Had that been done, Bruce said, the theft would have been discovered.

Additionally, CliftonLarsonAllen was doing the city's audit as well as Crundwell's personal tax returns, and should have made the connection – or at least brought it to the attention of the City Council – with irregularities in Crundwell's personal finances.

Crundwell's theft, both Bruce and Pope agreed, was an outlier.

They had different opinions about addressing theft in the future.

Bruce said auditors should be rotated on a regular basis, to avoid forming personal relationships with municipalities or companies, in addition to having more senior accounting staff handling audits.

Pope said finding fraud is a shared responsibility of several parties, including the auditors and city.